In the early 2010s, Greece was reeling from austerity measures imposed under its bailout. The loans ran to hundreds of billions of euros from eurozone governments and the IMF, with Germany as the largest creditor. Around this time, a story about Greek economic resistance began making the rounds.
In the spring of 2010, just as the first bailout was being finalized, the Greek government announced a new crackdown on the country’s rampant tax evasion. The sweeping new tax code and its related investigations unearthed a litany of financial improprieties. One peculiarity that came to light was the official count of swimming pools in Athens. The Greek tax authority had long used pool ownership as a marker of wealth. At the risk of sinking into pedantry, this wasn't a standalone tax on pools but part of Greece's tekmiria system of imputed income. Greeks are taxed on the higher of two numbers: their declared income or the income the state presumes from their lifestyle.
One component of this lifestyle calculation was a simple heuristic: if you own a pool, you must have money. Greeks with a pool larger than 25 square meters were required to declare a minimum income, €11,600 for an outdoor pool or €17,400 for an indoor one.
There was just one catch. The tax was entirely assessed based on reported holdings. And the famously tax-avoidant residents of Athens simply forgot to mention their pools in all official documents. In fact, the total number of pools reported in the wealthy northern Athens suburbs was 324—compared to the 16,974 pools later revealed by satellite imagery.
To the Greek tax investigators and their new foreign austerity czars, this was an obvious and clumsy dodge. Their answer was simple: it’s quite difficult to hide a swimming pool. Aerial photographs and satellite imagery revealed the scope of the gambit. Self reporting had a compliance rate under two percent. Detection was solved. The city’s aquatic upper class could (and would) be required to pay the full cost of pool ownership, and the EU was a few euros closer to recouping its loans.
The ruse had been discovered and Athenians now had to report their pools and bear the tax burden. Yet very little new revenue trickled in, from pools or otherwise. An estimated €10 billion in taxes went uncollected annually, with total evasion running at 3–4% of GDP. (Had this missing revenue been collected, it would have erased nearly half the country's deficit.) Pool owners simply determined that as long as their pool wasn’t visible from the air or the street, they would remain free from the long arm of the revenue service.
When the media began reporting that the government was using Google Earth images to hunt tax cheats, sales of large tarps and other pool camouflage systems boomed in Athens. Rather than producing compliance, detection created a new market.
This is the part that has always stuck with me. In most instances of tax evasion, people cheat because they don’t expect to be caught, so the introduction of detection is the end of the story. The Athenian story ran counter to this. Once a society tips into visible defection, that defection stops being taboo and becomes an investment. The tarp is simply capex.
For many—though certainly not all—pool owners, paying large sums of money to disguise their contraband was preferable to giving another cent to the tax authorities. The new tax collectors failed to account for the economic culture. For a Greek, paying taxes is sacrilege—not out of ideology, but a socio-economic failure running so deep that few felt it consciously.
Greeks of all income levels were afflicted by a sort of “tragedy of the tragedy of the commons,” in which the commons are abandoned because everyone believes the commons have already been abandoned. If my neighbor isn’t paying his income tax, why should I pay mine? Antisocial behavior is compounded by the human desire to avoid feeling like a rube.
This kind of conditional free-riding is driven by fear of the “sucker’s payoff”: the reward earned by an upstanding citizen for doing the right thing in an increasingly corrupted system. In the prisoner’s dilemma, this is the worst outcome on the board. Momentum builds quickly; as the rate of social adherence decreases, the per-capita cost borne by those doing the right thing increases sharply.
The Athenian pool owners recognized that they were playing a sucker’s game. In a social system that failed to punish—or even recognize—tax avoidance, the honest man paid for his neighbor’s pool. The state itself all but sanctioned this behavior. When French authorities handed the government a list of thousands of Greek-controlled shady Swiss bank accounts, no one lifted a finger.
It was easy to write this off as more Greek lawlessness. And many did. But there was something darker lurking under the surface. Quietly, over decades, Greece had slipped into a state of low trust. While individuals surely still saw themselves as bending towards honesty, justice and kindness, impressions of their neighbors soured. And when the average citizen deems his average neighbor untrustworthy and fully self-interested, the sucker's reward becomes the expected payout.
Maybe we can blame the colonels and their post-autocratic fallout; maybe it’s the legacy of the avarice and blatant disregard for social welfare practiced by Aristotle Onassis and his ilk. (Ironically, the international shipping fortunes these magnates earned were fully sheltered from Greek taxes by a statute written in 1967—the junta's first year.) Either way, the result was the same: a country blanketed by quiet mistrust. In any interaction, you might be drawing the short straw. It bred a generation of hyper-vigilant citizens, always on the lookout for grift, and determined that they would not be the sucker.
The tarps sell themselves.
So enforcement doesn’t rebuild trust, it simply moves the cost of distrust around—from the tax bill to the tarp; from the tarp to the lawyer; from the lawyer to the off-shore account. Greek tax compliance has measurably improved in the years since, but detection isn’t trust. Electronic receipts and mandatory card payments made visible defection more expensive than compliance—so I worry that the distrust simply migrated to whatever the cameras can’t reach.
Meanwhile, with fewer common bonds and increased pressure to "get yours" before sinking into the permanent underclass, trust at home in the US has been falling for decades. It's no wonder that we've seen a rise of the grift. We feel it in crypto rug-pullers, venture-backed con artists and the thousand-and-one smaller acts of pulling one over. It’s why regulatory enforcement never seems to catch up to crypto: the compliant have already priced in that they’re the suckers, and the defectors have already priced in the fine. Regardless of the scale, these perpetrators always demur: "if not me, someone else would have." And with every new instance, we lose a little more social trust—deepening our fear in every interaction: "am I the sucker?"